Novo Nordisk A/S (NVO - Analyst Report) reported second-quarter 2016 earnings of 60 cents per American Depository Receipt (ADR), beating the Zacks Consensus Estimate of 58 cents and increasing from the year-ago figure of 48 cents.

Quarterly revenues increased 3.9% year over year to $4.2 billion. The top line was driven by strong sales of Victoza, Tresiba, Saxenda and Norditropin. Sales were, however, partly offset by the performance of modern insulin and NovoSeven. Revenues were in line with the Zacks Consensus Estimate.

All growth rates mentioned below are on a year-over-year and in local currency.

Quarter in Detail

Total sales in the reported quarter improved 6% driven by sales growth in North America (3%) and China (19%).

The diabetes and obesity care segment recorded sales growth of 7%. Modern insulin decreased 2% due to lower sales of NovoRapid (3%), NovoMix (1%) and Levemir (1%). Meanwhile, the company’s key drug, Victoza, witnessed sales growth of 13%.

Sales in the biopharmaceuticals segment inched up 1%. Norditropin sales climbed 8%, while hemophilia sales were down 5%.

Sales and distribution costs were flat with the year-ago figure.

Research and development expenses increased 11% due to higher research costs related to diabetes and obesity projects. Administration costs increased 4%.

Pipeline Update

In the reported quarter, the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee (EMDAC) voted unanimously (16-0) in favor of the approval of IDegLira for the treatment of adults with type II diabetes. IDegLira is a once-daily, single injection, fixed combination of Tresiba and Victoza.

Meanwhile, the company has filed a Biologics License Application for the approval of long-acting factor IX, nonacog beta pegol, for the treatment of patients with haemophilia B.

NOVO-NORDISK AS Price and EPS Surprise

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Outlook

Novo Nordisk has revised its guidance for 2016. The company now expects 2016 sales to grow 5–7%, compared to the previous guidance of 5–9%. The company anticipates continually strong performance of modern insulins, Tresiba and Victoza, as well as higher contributions from Saxenda and Xultophy. However, this will be partly offset by the impact of a contract loss in the U.S. for NovoLog, loss of exclusivity for products in hormone replacement therapy, intensifying competition within diabetes and biopharmaceuticals, and macroeconomic conditions in many markets under International Operations.

Adjusted operating profit is now expected to be 5–8% (previously guided: 5–9%). This reflects growth in sales and distribution costs to support continued launch activities as well as increase in research and development costs to support the company’s pipeline progress.

For 2017, Novo Nordisk has completed the majority of formulary negotiations in the U.S. Average prices after rebates are expected to be moderately lower, while the market access for the company’s products is expected to remain largely unchanged.

Novo Nordisk carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are Anika Therapeutics Inc. (ANIK - Snapshot Report), Geron Corporation (GERN - Analyst Report) and Corcept Therapeutics Incorporated (CORT -Analyst Report). Each of these stocks sports a Zacks Rank #1 (Strong Buy).